Hermens v Acacia Group Limited
[2011] FCA 1286
•11 November 2011
FEDERAL COURT OF AUSTRALIA
Hermens v Acacia Group Limited [2011] FCA 1286
Citation: Hermens v Acacia Group Limited [2011] FCA 1286 Parties: ROLAND LEOPOLD LUCIEN HERMENS and PENELOPE HERMENS v ACACIA GROUP LIMITED and GREGORY MCCAULEY File number(s): NSD 1524 of 2010 Judge: JACOBSON J Date of judgment: 11 November 2011 Catchwords: CONTRACT – alleged oral agreement to employ the Applicant as CEO of company at a particular net wage –whether the conduct of the parties establishes the terms of the alleged bargain – whether there was an implied agreement to pay a reasonable wage – conduct of the parties did not did not show the alleged bargain
TRADE PRACTICES – misleading or deceptive conduct – statements made did not amount to a representation for the purposes of s 52 of the Trade Practices Act 1974 (Cth)
Legislation: Trade Practices Act 1974 (Cth), ss 52 and 82 Cases cited: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110
Legione v Hateley (1983) 152 CLR 406
Meates v Attorney General [1983] NZLR 308
Ormwave Pty Ltd v Smith (2007) 5 DDCR 180Date of hearing: 13, 14, 15 September 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 135 Counsel for the First and Second Applicants: Mr D Lloyd Solicitor for the First and Second Applicants: A R Walmsley & Co Solicitors Counsel for the First and Second Respondents: Mr B Hull Solicitor for the First and Second Respondents: HWL Ebsworth
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1524 of 2010
BETWEEN: ROLAND LEOPOLD LUCIEN HERMENS
First ApplicantPENELOPE HERMENS
Second ApplicantAND: ACACIA GROUP LIMITED
First RespondentGREGORY MCCAULEY
Second Respondent
JUDGE:
JACOBSON J
DATE OF ORDER:
11 NOVEMBER 2011
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The application be dismissed.
2.The First Applicant pay the costs of the proceedings.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1524 of 2010
BETWEEN: ROLAND LEOPOLD LUCIEN HERMENS
First ApplicantPENELOPE HERMENS
Second ApplicantAND: ACACIA GROUP LIMITED
First RespondentGREGORY MCCAULEY
Second Respondent
JUDGE:
JACOBSON J
DATE:
11 NOVEMBER 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Mr Hermens and Mr McCauley and their wives were the incorporators of Acacia Group Limited (“Acacia”) which carries on business as a not-for-profit private education and training college.
Mr Hermens claims to have been an employee of Acacia for the period from its incorporation in August 2008 until he was removed as a director in July 2010.
The principal claim made by Mr Hermens in this proceeding is for recovery of back-pay for wages said to be due to him by Acacia pursuant to an oral agreement made between Mr Hermens and Mr McCauley.
The agreement is said to have been made in June 2008 when Mr Hermens and Mr McCauley were planning the establishment of Acacia. It is also said to be evidenced by a document created by Mr Hermens some time after the incorporation of Acacia in which the duties of the CEO of Acacia are described.
It is clear that Mr Hermens held the position of Chief Executive Officer (“CEO”) but whether that title was more than a nominal one, applicable for only very limited purposes, is in dispute.
The effect of the conversation on which Mr Hermens relies is that Acacia would pay him $1,000 per week net, that is after deduction of tax. He claims that due to cash flow difficulties in the period after Acacia commenced business, he and Mr McCauley agreed that the payment of wages would be deferred. The amount of back-pay claimed by Mr Hermens is $163,080.00 which comprises of $170,000 in wages and $17590 in unpaid superannuation with interest less $24,510.00 of payments and drawings which had been received.
The conversations on which Mr Hermens bases his claim are denied by Mr McCauley. Many other parts of the relevant factual background are also in dispute.
An important issue which therefore arises is whether I accept Mr Hermens’ evidence of the critical conversations. This turns upon my assessment of the witnesses bearing in mind my observations of them in the witness box and the objective probabilities arising from my consideration of the factual matrix.
But even if I accept Mr Hermens’ evidence, a real issue arises as to whether what was said and done was sufficient to prove all the essential elements of a contract: see Integrated Computer Services Pty Limited v Digital Equipment Corporation (Aust) Pty Limited (1988) 5 BPR 11,110 (“Integrated Computer Services”).
Mr Hermens also makes a claim against Mr McCauley to recover the back-pay by reason of the alleged misleading and deceptive conduct of Mr McCauley. The claim is made under ss 52 and 82 of the Trade Practices Act 1974 (Cth) (as then in force). It is based on the same factual material as gives rise to the claim in contract against Acacia.
The other claim in the proceeding made by Mr and Mrs Hermens is for recovery of their initial contributions of $15,000 each to the capital of Acacia.
That claim depends upon the terms on which the money was provided to Acacia and the constitution of the company.
Mr Hermens was the only witness in his case. Mr McCauley gave evidence for the respondents. Evidence was also given by his wife, Mrs Francis McCauley, and by Ms Megan Atkins who was a non-executive director of Acacia from about 4 February 2009.
The background facts: 2008 to 30 June 2009
During 2007 and 2008, Mr Hermens and Mr McCauley were teachers at the Blacktown TAFE. They met when they were teaching in the School of Business Services at the TAFE.
In early 2008 Mr Hermens and Mr McCauley had some discussions about teaching courses to indigenous students. Both men were engaged in the teaching and co-ordination of a program known as iSTEPS (the Indigenous Special Training and Education Programs) which was provided to indigenous students at the TAFE. However, they were dissatisfied with the way in which the program was conducted and believed they could establish a Registered Training Organisation (“RTO”) to run the programs themselves.
There is a dispute between the parties as to why they were dissatisfied with the situation at TAFE. Each suggests that the other had a reason for wanting to leave TAFE but I do not think that anything turns on this. What is plain is that they did ultimately give up their teaching jobs at TAFE and establish Acacia as the company which conducted an RTO at premises in High Street, Penrith.
Mr Hermens’ evidence of the first critical conversation was that Mr McCauley came into Mr Hermens’ office at TAFE in about June 2008 and said:
“Get me out of here.” I responded, “Well, I should get going with the college idea, but I’m on, you know, good money. I’m earning over $1000 a week and I wasn’t willing to let that go, unless the college could support that income.” He said, “I agree. I want the same thing out of this.” I said, “Okay. I will get on with it.”
Mr McCauley denied that a conversation to this effect took place. His evidence of the initial discussions made no mention of how much income or payment each of the men wanted or expected to make out of the venture.
Both agreed that there were discussions in June or July 2008 about the amount of money each would need to contribute to establish the venture. They agreed it would cost about $60,000 to get the company up and running including obtaining accreditation as an RTO with the Vocational Education Training Assessment Board (“VETAB”). They therefore agreed to contribute $30,000 each to establish the venture.
The relevant conversation about the set-up costs took place in about July 2008. It was common ground between the parties that Mr Hermens arranged the VETAB registration. It was also common ground that Acacia was to be established as a not-for-profit company.
Acacia was incorporated on 11 August 2008 as a not-for-profit company limited by guarantee.
The business name, Acacia Education & Training was registered at about the same time. This became the name under which the RTO traded.
Mr Hermens’ evidence was that in September 2008, he told Mr McCauley that he was ready to lodge the registration documents with VETAB but they needed to nominate a CEO as a requirement of VETAB. It was common ground between Mr Hermens and Mr McCauley that Mr McCauley said that Mr Hermens was the most qualified for that purpose and that he should therefore put his name down as the CEO.
It was an essential part of Mr Hermens’ case that he was the CEO of Acacia for all purposes but Mr McCauley said the appointment was only for the purpose of satisfying the requirements of VETAB.
On 24 October 2008 Mr Hermens provided his initial contribution of $30,000. The funds were drawn from Mrs Hermens’ account and credited to the loan accounts of Mr and Mrs Hermens with Acacia in the sum of $15,000 each.
In the period up to November 2008, Mr Hermens carried out the necessary work of setting up Acacia and pursuing the VETAB registration. He did so while continuing to work at the Blacktown TAFE. The work involved in setting up Acacia was therefore carried out part time, during early mornings and in the evening. It was not until November 2008 that Mr Hermens ceased his employment at the Blacktown TAFE.
In November 2008 Mr Hermens located premises at High Street, Penrith which he considered to be suitable for Acacia’s business. Mr McCauley was happy with the site which was near the Penrith TAFE. Mr Hermens negotiated a lease which provided for a partial rent holiday and bond of $15,000. Mr McCauley agreed to pay the bond as a part payment of his start up contribution of $30,000.
Acacia moved into the High Street premises in around mid-December 2008 or early January 2009. At about that time, Acacia conducted some renovations and purchased furniture. Mr McCauley seems to have arranged the renovations and purchase of the furniture as part of his contribution to the start up costs.
On 19 January 2009 there was a Board meeting of Acacia at the company’s premises at Penrith. Mr Hermens and Mr McCauley were present. The meeting was also attended by Ms Megan Atkins. Ms Atkins was not formally appointed as a director of Acacia until February 2009 but she was involved in the company’s activities for some months before her appointment.
A document was created which is best described as an informal minute of the meeting. Ms Atkins said that she prepared it from handwritten notes. The document has that appearance.
The minute includes the following item:
CEO payments: 2K director drawing.
Mr Hermens said that there was a conversation at the meeting on 19 January 2009 about this topic. He said it was in the following terms:
“Well, I – I have to take out a wage cheque, and we had agreed on that.” She said, “Well, what is the rate?” I said, “We agreed $1000 a week.” Greg McCauley said, “Yes, that’s right, we did.” She said, “Okay, then.”
Neither Mr McCauley nor Ms Atkins gave direct evidence of what was said at the meeting. Ms Atkins was asked in cross-examination how the entry “CEO Payments” came to be made on the document. She said that the minute was prepared for the purpose of providing evidence of board meetings to VETAB, as part of a VETAB audit, and that:
“I volunteered to take what handwritten notes we had, and type those up into a better format to present for the purposes of the VETAB audit”.
Ms Atkins agreed that the reference to “CEO” was a reference to Mr Hermens. She was not asked about Mr Hermens’ evidence that the $2,000 was a wage cheque, but the effect of her evidence was that the handwritten note from which she prepared the minute was a contemporaneous one and it described the sum as a drawing.
The sum of $2,000 was entered in Acacia’s books as a drawing against Mr Hermens’ loan account. The cheque was drawn on 22 December 2008. The only reference on the loan account drawing is “CEO”.
It was put to Mr Hermens’ in cross-examination that the $2,000 drawing was in fact just a drawing on his loan account but he denied that this was so.
Acacia obtained its VETAB authorisation as an RTO in January 2009. It “opened its doors” as an RTO on 26 January 2009 offering eight different business service courses.
In around February 2009 Mr Hermens prepared two documents entitled “Job Description” in which he set out a description of the positions of “CEO” and “General Manager” respectively. These documents were central to Mr Hermens’ case because he claimed that Acacia employed him to carry out the duties set out in the Job Description for the CEO. He also contended that the Job Description of the General Manager was a statement of the position to be taken up by Mr McCauley.
Each of the Job Description documents gives a general description of the responsibilities of the office but neither of them states that the holder of the office was an employee of Acacia. Nor does it contain any statement of a wage or other payment to be made to the person holding the office.
Mr Hermens did not claim to have had any discussion with Mr McCauley about the CEO document. The effect of Mr Hermen’s evidence was that he handed the CEO Job Description and the General Manager documents to Mr McCauley and that he, Mr Hermens, did the work referred to in the CEO document.
Mr McCauley was cross-examined about the Job Description documents. His evidence was that he read the documents and he did some research into the office of a CEO but, although he did not agree with it as a statement of Mr Hermens’ position, he did not say anything to Mr Hermens about the document.
The effect of Mr McCauley’s evidence on this topic was that he expected the matters contained in the Job Description documents to be discussed by the board of Acacia. However, he conceded that there was only one formal board meeting of Acacia in 2009 and he accepted that a number of important decisions were made informally between Mr Hermens and himself.
Mr McCauley denied that he knew, when the Job Description documents were shown to him by Mr Hermens, that Mr Hermens and Mr McCauley were going to be employed by Acacia as CEO and General Manager respectively.
At about the same time (or perhaps earlier, having regard to the date of the document) another document which described the “Internal Governance for Continuous Improvement” of Acacia (“the Internal Governance document”) and Acacia Education and Training was shown to Mr McCauley.
The Internal Governance document describes the role of the CEO as follows:
to provide regular high level advice to Acacia Education & Training directors on the day-to-day operational business … and on operational or contentious issues.
The Internal Governance document also contains a chart showing the internal governance arrangements and relationships between stakeholders. The positions of “CEO” and “Managers” are shown at the top of the chart as being responsible for the development of the business, with the endorsement of the board of directors.
The document bears the date August 2008 which is consistent with Mr McCauley’s evidence that the document was shown to him in late 2008 in the course of the application for VETAB accreditation, rather than in February 2009 as was suggested to him in cross-examination.
The effect of Mr McCauley’s evidence on this topic was that the Internal Governance document was prepared purely for VETAB purposes and that the description of the role of the CEO in the document was limited to Acacia’s dealings with VETAB.
There were other company documents in which Mr Hermens was described as the CEO. One was a business card that was prepared in about March or April 2009. Others were emails and correspondence. Mr McCauley’s evidence was that he was aware of the documents but he considered that this was done because the title of CEO was a VETAB requirement. Ultimately, however, Mr McCauley conceded that Mr Hermens was the CEO of Acacia Education and Training.
In the financial year ending 30 June 2009 Acacia did not do well financially. It was still in “start-up” phase and was having problems meeting its expenses. In around May 2009 Mr McCauley offered to assist by providing his personal credit card for payments of the company’s bills.
Acacia’s accounting records as at 30 June 2009
The accounting records of Acacia show that as at 30 June 2009 Mr and Mrs Hermens and Mr and Ms McCauley had contributed their “start-up” contributions of $30,000 per family which were credited to their loan accounts.
There were other transactions on the loan accounts of Mr Hermens and Mr McCauley during that financial year. Mr McCauley had contributed more than his $15,000 share. He did so by making a number of cash deposits and by paying a number of company expenses. His loan account therefore stood in credit in an amount of just over $32,000.
Mr Hermens’ loan account was also in credit. His contributions consisted of his initial $15,000 and certain other payments of company expenses of over $6,000. However, other items totalling $9,306.29 were recorded as drawings against Mr Hermens’ loan account, leaving him with a credit balance of slightly less than $12,000.
Mr Hermens’ drawings were recorded in a company ledger under the heading “RH private drawings”. Those items consisted of the $2,000 to which I referred earlier at [37]–[38] and other items such as payments to service stations and supermarkets. Mr Hermens conceded in cross-examination that many of the items recorded under the “RH private drawings” column were payments for his personal or private purposes.
Significantly, the ledger contains a column with a headings “wages” but it contains no entry for any wages to Mr Hermens. By contrast, the wages of an employee of Acacia, Mr M Lyon, are recorded in the wages column in the ledger.
It is also significant that the ledger was an accounting record prepared by Mr Hermens. He seemed reluctant to concede this but ultimately did so.
Moreover, there were no records of Acacia for the financial year ending 30 June 2009 of a type which would normally be kept for Mr Hermens, if he were an employee. That is to say, there were no PAYG tax records, no payment of superannuation guarantee contributions and no suggestion that there was any record of Mr Hermens as an employee for purposes of workers’ compensation insurance.
Nor was there a Group Certificate and Mr Hermens did not disclose any wages from Acacia as income in his 2009 tax return. His only explanation for this was his assertion that relevant accounting records were missing.
Background facts continued: July 2009 to 30 June 2010
In July 2009 Mr McCauley left his full time employment with the Blacktown TAFE and began work at Acacia.
Mr Hermens gave evidence-in-chief of a conversation with Mr McCauley just after Mr McCauley started working at Acacia full time. Mr Hermens said that Mr McCauley told him that he,Mr McCauley, needed to get some money out of the business but Mr Hermens said they were having cash flow problems.
Mr Hermens said that during the course of the conversation he told Mr McCauley that “I haven’t paid myself properly” and that “there was still back-pay”. He said that the conversation continued as follows:
I said “I’m falling way behind on my mortgage. I have a million dollars worth of mortgage I have to service”. I said “I need to pay around 7,000 in mortgages” … Mr McCauley said “We’ve got more cheques coming in very soon. When they do, take out what you need”.
In cross-examination Mr Hermens said that the conversation took place in December 2009 in the Acacia car park.
Mr McCauley agreed that a conversation took place at about that time in the car park. He said Mr Hermens told him he was having “issues” with his mortgage and requested a payment of $7,000 to put toward his mortgage. Mr McCauley agreed and wrote a cheque for that amount.
The payment of $7,000 was made by Acacia to Mr Hermens on 7 December 2009. The payment was debited to Mr Hermens’ loan account but it was recorded as “Wages; R.Hermens”.
There were other drawings against Mr Hermens’ loan account earlier in that financial year but they were recorded merely as “CEO” and later as “Roland Hermens”. Some of them were for $1,000. Others were for $800. Those payments were as follows:
3 July 2009
$1,000
9 July 2009
$1,000
17 July 2009
$1,000
24 July 2009
$1,000
29 July 2009
$800
5 August 2009
$800
13 August 2009
$800
20 August 2009
$1,000
26 August 2009
$1,000
3 September 2009
$1,000
14 October 2009
$1,000
16 October 2009
$1,000
2 November 2009
$2,000
The only other evidence which Mr Hermens gave in his oral evidence about the topic of wages in that period did not directly mention the payment of wages to him. He said there was a conversation with Mr McCauley in August 2009 about the difficulties in paying wages to employees and the payments of “wages et cetera”. He also said he had a conversation with Mr McCauley in September 2009 in which Mr Hermens said:
We will use … the corporate credit cards to pay any bills, to take some pressure off our salaries.
Mr Hermens said that Mr McCauley agreed to this, but the effect of Mr McCauley’s evidence was that he denied there was any reference to payments of salaries.
In about December 2009 or January 2010 Mrs McCauley seems to have expressed concern about what she perceived to be Mr Hermens’ use of the corporate credit card for personal use. Whether or not there was any prior agreement between Mr Hermens and Mr McCauley for this, it is plain that there were concerns by Mr and Mrs McCauley and by Ms Atkins as to the state of the Company’s financial affairs and the need to regularise payments.
Ms Atkins gave evidence which I accept, that it was these concerns which gave rise to a board meeting of Acacia that was held on 28 January 2010. The minutes of the meeting were in evidence.
The minutes of 28 January 2010 record a motion moved by Ms Atkins and seconded by Mrs McCauley that:
a payment of $800 net be paid to the CEO, Roland Hermens from 29 January 2010 weekly.
The motion was carried, as was a motion in similar terms for the payment of $800 net to be paid weekly to the General Manager, Mr Greg McCauley.
Mr McCauley was cross-examined about the minutes, and in particular about the use of the words “net” and “weekly” but he was not able to give a satisfactory explanation. He said the payments were treated as drawings but he could not say why the minutes described them in the manner set out above.
Schedules showing the payment of the moneys to Mr Hermens and Mr McCauley were in evidence. In each instance the payments were debited to their loan accounts. The payments on 29 January 2010 and 4 February 2010 were recorded as “Wages R.Hermenes” (sic) and “Wages G.McCauley”. Thereafter, the payments were recorded merely as “Roland” or “Greg”.
Subject to one exception, payments were made in the amount of $800 (or a multiple thereof) to Mr Hermens and Mr McCauley on a regular basis during the period from 29 January 2010 to 26 May 2010.
The exception was a payment to Mr Hermens on 22 March 2010 of $2,800. It was suggested to Mr Hermens in cross-examination that this consisted of two payments of $800 plus an amount of $1,200 which was unauthorised. Mrs McCauley gave evidence that she had taken up the unauthorised payment with Mr Hermens at a board meeting in March but there is no company record to that effect.
On 29 April 2010 Mr Hermens sent an email to Mr and Mrs McCauley and Ms Atkins stating that he was taking stress leave and temporarily standing down as CEO.
Mr Hermens returned to work on 24 May 2010 but by then there was considerable acrimony between the parties and Mr McCauley told Mr Hermens not to return to work. The source of the acrimony was the payment by Mr Hermens of personal expenses out of Acacia’s funds.
Shortly after the end of the financial year, on 5 July 2010, a letter was sent to Mr Hermens, signed by Mr and Mrs McCauley and Ms Atkins, informing him that a resolution was passed at a board meeting on 3 July 2010 terminating Mr Hermens’ authority to act as agent, officer or representative of Acacia.
Acacia’s accounts as at 30 June 2010
The financial statements for Acacia for the year ended 30 June 2010 show that Mr McCauley’s loan account was in credit in the amount of just over $38,000 whereas Mr Hermens’ loan account was in debit in the amount of $40,642.
The reason for the imbalance between the loan accounts was that Mr McCauley made further financial contributions to Acacia whereas Mr Hermens did not. The amounts which each was paid pursuant to the resolution of 28 January 2010 was treated as a drawing against the loan account, rather than as wages.
As in the previous years, there were no Group Certificates or other records recording the payments to Mr Hermens, or Mr McCauley as wages.
The relevant principles
It is now well established that the classical rules of offer and acceptance do not fit easily into every contractual arrangement. Thus, in determining whether a contract has been formed, it is not always necessary to identify a precise offer or a precise acceptance, or indeed a precise time at which offer and acceptance have taken place: see the review of the authorities by Heydon JA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [71]–[80]; see also Ormwave Pty Ltd v Smith (2007) 5 DDCR 180 at [68]–[75] per Tobias JA.
The question which arises in the class of cases where the classical rules cannot be applied is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement: Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117–11,118 per McHugh JA (“Integrated Computer Services”).
Two caveats to which McHugh JA drew attention in Integrated Computer Services should be noted. First, it is an error to suppose that merely because something has been done, then, there is therefore, a contract in existence. Second, the conduct of the parties must be capable of proving all the essential elements of an express contract.
A succinct statement of the relevant principle is to be found in the remarks of Cooke J in Meates v Attorney General [1983] NZLR 308 at 377 (“Meates”) that:
The acid test in the case like the present is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.
Was there a contract in the terms alleged?
The contract for which Mr Hermens contended was that Acacia employed him as the CEO at a wage of $1,000 per week, net after tax. The contract was said to have been made in August 2008 and to have continued until May 2010 when Mr Hermens ceased to work for the company.
The authorities to which I have referred show that the answer to this question turns not only on what was said between Mr Hermens and Mr McCauley but whether the conduct of the parties, viewed as a whole, establishes all of the elements of the alleged bargain.
There are aspects of the oral evidence of each of Mr Hermens and Mr McCauley which I cannot accept. I will refer to those aspects of the evidence shortly.
First, I do not accept Mr Hermens’ version of the conversation on June 2008 in its entirety. However, I do not accept Mr McCauley’s evidence that he and Mr Hermens had no discussions prior to establishing Acacia about how much income each of them wished to obtain from the venture.
It seems to me to be likely that two men who were in full time employment at $1,000 net per week would have had some discussions before agreeing on an exit path from the Blacktown TAFE as to the prospects of earning at least an equivalent figure from the new venture.
Second, I do not accept the evidence of Mr McCauley (or Ms Atkins’ evidence on the same topic) that Mr Hermens was the CEO of Acacia purely for the purposes of the VETAB accreditation.
Acacia was a RTO. Without the VETAB accreditation it had no business. VETAB required a CEO and Mr Hermens filled that role. He did so with the approval of the other directors of the company. He was described as the CEO in numerous internal documents and on the Acacia business card.
I accept that Mr McCauley and Ms Atkins may have regarded the title of “CEO” as a somewhat inflated statement of the status which Mr Hermens occupied but all the objective evidence points to the conclusion that he was the CEO of Acacia.
Third, I do not accept Mr Hermens’ evidence of the conversation which he says took place at the 19 January 2009 board meeting. It is contrary to the written minute of the meeting which was prepared from Ms Atkins’ handwritten notes. Her notes are likely to be the most reliable source of what was said.
Fourth, I do not accept Mr McCauley’s evidence that he expected the CEO and General Manager Job Description documents to be considered by the board of Acacia. That was not the way in which the company’s affairs were conducted, at least in February 2009 when the Job Description documents were prepared and shown to Mr McCauley.
The evidence shows that, at least until January 2010, Acacia’s affairs were conducted on an informal basis. Decisions were made informally, without board meetings, and the conduct of the business was left largely to Mr Hermens and Mr McCauley. It seems to me that in those circumstances I can infer from Mr McCauley’s failure to complain about the CEO Job Description documents that he was content for Mr Hermens to carry out the duties of the CEO as stated in the document.
Moreover, the evidence shows, and Mr McCauley accepted, that Mr Hermens was the CEO of Acacia Education & Training which was the business name under which Acacia ran the RTO.
The evidence also shows that Mr Hermens carried out many of the functions of the CEO as stated in the document, albeit in a more informal way than was stated in the Job Description.
Whether or not Mr Hermens performed his functions satisfactorily or whether or not he was guilty of the allegations of misconduct made against him by Mr and Mrs McCauley and Ms Atkins is not relevant to the question of whether there was a contract between Acacia and Mr Hermens.
Fifth, I accept that there was a conversation between Mr Hermens and Mr McCauley in the car park in about December 2009 during which Mr Hermens told Mr McCauley about his financial problems and requested payment of the sum of $7,000.
Mr McCauley agreed that a conversation to that effect took place. It is supported by two powerful objective factors. First, Mr Hermens had financial difficulties and needed the money for his mortgage payments. Second, the cheque for $7,000 was drawn and paid to Mr Hermens.
I am also of the view, on the balance of probabilities, that there was some mention in the conversation about Mr Hermens’ difficulties being caused by the failure to pay himself properly. That was the objective fact. Moreover, the payment was described as “wages” in Mr Hermens’ loan account.
I am inclined against the view that Mr Hermens said in the conversation in the car park that he was owed back-pay. There was nothing in the conversation between the two at this stage to suggest any agreement to pay a wage, whether in a specific sum, or at all. It was therefore unlikely, in my opinion, that Mr Hermens referred to back-pay.
Sixth, I do not accept that in a conversation in August 2009 Mr Hermens referred to the use of credit cards to take pressure off “our salaries”. Mr McCauley’s evidence that there was no discussion of salaries in that conversation is more consistent with the objective facts because neither he nor Mr Hermens were taking salaries.
In light of these findings I have come to the view that there was no conversation between Mr Hermens and Mr McCauley to the effect that Acacia would pay Mr Hermens a salary of $1,000 a week, net, as contended by Mr Hermens.
Even if I were to take Mr Hermens’ evidence at its highest, it seems to me that it falls short of establishing a concluded bargain in the terms alleged.
I accept that Acacia’s affairs were conducted informally and it may therefore have been possible for a contract to have come into existence upon the basis of conversations between Mr Hermens and Mr McCauley provided it was clear enough from the conduct of all parties that Acacia agreed to employ Mr Hermens as CEO for $1,000 a week.
But even at its highest, Mr Hermen’s evidence falls far short of that. It fails the acid test stated by Cooke J in Meates of demonstrating objectively from the point of view of reasonable persons on both sides, all the elements of the concluded bargain for which Mr Hermens contends. There are three reasons for this:
First, if I were to accept Mr Hermens’ evidence of all the conversations, they are too fleeting and inconclusive to point to the necessary terms of the contract alleged.
Second, in the company’s first financial year of trading there were no wages paid to Mr Hermens or Mr McCauley. Nor were there any indicia of wages to Mr Hermens in the records of Acacia for that period.
Indeed, what seems to me to be the most important piece of evidence against Mr Hermens’ case is the Acacia ledger which showed payments to him as personal drawings whilst leaving blank the column specifically allocated to wages.
Third, although I accept that Mr Hermens was the CEO of Acacia and that he performed duties in accordance with the CEO Job Description, that does not necessarily establish a contract of employment between the company and Mr Hermens. It may be possible for a director of a company to be the chief executive officer without being employed by the company to carry out those duties. In any event, it is not possible to infer from the fact that Mr Hermens was the CEO that there was an agreement that he would be paid a salary of $1,000 net, or indeed any other amount.
There are only two items of evidence which point to the possibility of an agreement to pay a wage to Mr Hermens but neither item supports a finding that there was an agreement between Mr Hermens and Acacia to pay a salary in any fixed amount.
The first is the recording of the $7,000 payments to Mr Hermens in December 2009 as wages. Whatever the significance of that entry, it shows no more than an agreement by Acacia to pay Mr Hermens the amount he requested to meet his mortgage payments. There is nothing in the car park conversation or the accounting entry which points to an agreement to pay Mr Hermens $1,000 per week.
It is no more than speculation to suggest that the $7,000 represented $1,000 per week for 7 weeks. Nor does the conversation or the accounting entry point to an acknowledgment by Acacia of an agreement to pay Mr Hermens $1,000 per week as salary or wages.
The second item is the minute of the board meeting of 28 January 2010 and the recording of the first two payments to Mr Hermens as wages. The terms of the resolution which refer to a payment of $800 “net” to be paid “weekly” do suggest that Acacia agreed to pay that sum to Mr Hermens as a wage. This is reinforced by the fact that the first two payments of $800 were described as “wages” in Mr Hermens’ loan account.
However, even if the resolution of 28 January 2010 evidences an agreement to pay wages, it does not establish the agreement for which Mr Hermens contends. At most, it was a new agreement, for a different amount, and it operated only for a period of about three months prior to Mr Hermens’ departure from the company.
Was there an implied agreement to pay a reasonable wage
Even if there was an agreement between Acacia and Mr Hermens that he would be the CEO, I do not consider it was a term of the agreement that he would be paid a reasonable wage.
All of the objective circumstances are contrary to that suggestion and the case does not satisfy the test for implication of a term into the contract: see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347.
What needs to be taken into account is that Mr Hermens and Mr McCauley were (with their wives) the incorporators of the company. This was not a case of an employer employing an independent person to occupy a job such as a receptionist or a teacher in the college, where such an implication may be appropriate.
Here, the objective circumstances suggest that the agreement between the parties was that Mr Hermens and Mr McCauley would seek to establish and build up the business, achieving as much income as they could, and then determine at the end of the financial year how much they would take from any surplus by way of salary.
If the surplus was $200,000 they may take $100,000 each. But if the surplus was only $20,000 they could, at most, take $10,000 each.
Moreover, the circumstances suggest that Mr Hermens and Mr McCauley wished to take any income in the most tax effective way. It may be that this would be done by splitting the income with their wives.
It is therefore not so obvious that it goes without saying that Mr Hermens would be paid a reasonable wage.
Nothing turns on the fact that Megan Thorpe was employed at a wage of $60,000 or that, after Mr Hermens’ departure from the company, a decision was taken to pay wages to Mr McCauley.
Misleading conduct
Even if I were to accept all of Mr Hermens’ evidence, the statements made to him by Mr McCauley did not have the necessary quality of certainty to amount to a representation for the purposes of s 52 of the Trade Practices Act 1974: see Legione v Hateley (1983) 152 CLR 406 at 435–436.
The $30,000
The $30,000 contributed by Mr and Mrs Hermens to the establishment of the company was in the nature of a capital contribution. It is true that it was credited to the loan accounts but the loans were not repayable on demand.
Nor were they repayable merely because Mr Hermens ceased to be involved with the company. Rather, the question of whether the loans are repayable turns on Acacia’s constitution.
Counsel for Mr Hermens relied on Article 61 of the company’s constitution. But no matter how broadly the article is to be construed, it does not extend to repayment of loans made to the Company. Indeed, that article points against the whole of the case brought by Mr Hermens because it requires board approval for payment of expenses, payment for services and payments as an employee.
The relevant article is Article 97 which deals with distribution of the Company’s assets on a winding up. The article is in different terms from the usual article which would provide for recovery of a surplus on a winding up. Here, any surplus is not to be paid to the members but is to be transferred to another company with similar objects.
It seems to me that this article extends only to any surplus left after payment of creditors. If Mr or Mrs Hermens were a creditor on a winding up of Acacia, the article would not deprive them of their right to repayment of a credit balance in the loan account.
However, it seems to me that the effect of the constitution is that where members such as Mr and Mrs Hermens contributed loan capital to Acacia, there is no entitlement to have it repaid except on a winding up of the company.
Conclusion and Orders
The claim brought by Mr and Mrs Hermens must be dismissed.
Costs should follow the event except insofar as the proceeding includes a claim by Mrs Hermens to recover her loan contribution. Her claim was added late and it did not add any additional costs to the proceeding. It follows that there should be no order for costs against Mrs Hermens.
Accordingly, I will order that the application be dismissed and that Mr Hermens is to pay the costs of the proceedings.
I certify that the preceding one hundred and thirty-five (135) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate:
Dated: 11 November 2011
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